By Pam Martens and Russ Martens: February 25, 2015
Two major stories have broken this week showing how little has actually changed under the much heralded financial reform legislation known as Dodd-Frank. That legislation was enacted in 2010 with the promise of ending the unchecked corruption, conflicts of interest and casino capitalism that crashed the U.S. financial system in 2008, leading to the largest taxpayer bailout in the nation’s history.
Yesterday, in a front page article, the New York Times used data to back up the withering conflicts of interests of SEC Chair Mary Jo White – the same conflicts that Wall Street On Parade reported two years ago. (See related articles below.)
The Times reported that because Mary Jo White had worked for a major Wall Street powerhouse law firm immediately preceding her term at the SEC, representing major Wall Street firms like JPMorgan Chase, she had recused herself at least 48 times on cases involving either her former law firm or clients she directly represented.
Then comes the less than credible part of the Times story. The reporters write: “But in a surprising twist, Ms. White will have to keep sitting out cases that involve her husband’s firm, Cravath, Swaine & Moore. So far, she has had to recuse herself from at least 10 investigations into clients of Cravath, interviews and records show, including some that came before Ms. White joined the agency and at least four that involved Mr. White himself.”
“Surprising twist”? This is what Wall Street On Parade reported in 2013:
“The conflicts of White, a law partner at one of Wall Street’s favorite go-to firms, Debevoise & Plimpton, and those of her husband, John White, also a partner at a Wall Street law firm, are legion. Between White and her husband, they represent every too-big-to-fail firm on Wall Street. (Under ethics laws for members of the Executive branch, the conflicts of interest of White’s spouse become her conflicts of interest. And he will remain in his job.)…
“Even if Mary Jo White is retiring from representing Wall Street clients, what happens when she sits down for dinner with her husband, John White, who continues to represent Wall Street clients. Does she say: ‘Oh by the way, honey, I’m sorry I had to prosecute your best client today; the one that provides a big part of your billable hours.’ How does John White explain to his colleagues at his law firm that his wife is prosecuting their biggest revenue clients. Why would Mary Jo White, who earns a huge salary at her law firm, want to be put in that position in order to head the SEC?”
This morning, Bloomberg News is running a headline that reads: “Lure of Wall Street Cash Said to Skew Credit Ratings.” Again, the less than credible part of this headline is “Said to.” The Financial Crisis Inquiry Commission intensely investigated the role of the credit rating agencies in the 2008 financial collapse and reported as follows:
“We conclude the failures of credit rating agencies were essential cogs in the wheel of financial destruction. The three credit rating agencies were key enablers of the financial meltdown. The mortgage-related securities at the heart of the crisis could not have been marketed and sold without their seal of approval. Investors relied on them, often blindly. In some cases, they were obligated to use them, or regulatory capital standards were hinged on them. This crisis could not have happened without the rating agencies. Their ratings helped the market soar and their down-grades through 2007 and 2008 wreaked havoc across markets and firms.
“In our report, you will read about the breakdowns at Moody’s, examined by the Commission as a case study. From 2000 to 2007, Moody’s rated nearly 45,000 mortgage-related securities as triple-A. This compares with six private-sector companies in the United States that carried this coveted rating in early 2010. In 2006 alone, Moody’s put its triple-A stamp of approval on 30 mortgage-related securities every working day. The results were disastrous: 83% of the mortgage securities rated triple-A that year ultimately were downgraded. You will also read about the forces at work behind the breakdowns at Moody’s, including the flawed computer models, the pressure from financial firms that paid for the ratings, the relentless drive for market share, the lack of resources to do the job despite record profits, and the absence of meaningful public oversight. And you will see that without the active participation of the rating agencies, the market for mortgage-related securities could not have been what it became.”
It becomes clearer everyday that the only thing that is going to bring material reform to Wall Street is, tragically, another crash in the U.S. financial system and devastating economic losses to the hardworking families who believe that Congress actually reformed the system in 2010 with Dodd-Frank.